Purchasing manager surveys add to sterling's woes

LONDON (Reuters) - Sterling was rooted near a seven-year low against the dollar on Wednesday with a weaker than expected reading of construction industry sentiment adding to a blow from weak numbers on manufacturing a day earlier.

Sample polymer five and ten GB pound banknotes are displayed at the Bank of England in London September 10, 2013. REUTERS/Chris Ratcliffe/pool

The construction purchasing managers index showed growth in the sector fell to a 10-month low in February in what was its weakest reading in almost three years.

While Britain’s economy continues to outpace many of its European peers, investors have become convinced it will not be strong enough any time soon to justify a rise in interest rates.

The pound has also been hit hard since the formal launch just over a week ago of Britain’s referendum campaign over whether to remain in the European Union. Sterling fell 0.2 percent to $1.3935 and 78.02 pence per euro on Wednesday.

“I won’t be getting bullish on the pound any time soon,” said Kit Juckes, a strategist with Societe Generale in London.

“A catalyst for the next leg lower in sterling against the dollar is absent at the moment. But I’m not sure the EU referendum debate is getting less toxic, and I’m certain the outcome is as unclear as it could be.”

The pound’s almost 9 percent fall on a trade-weighted basis in the last three months is its worst performance in seven years, driven largely by worries that Britons may vote on June 23 to leave the EU.

Investors worry a “Brexit”, as well as further pushing back UK rate hike expectations, would threaten the huge foreign investment flows Britain needs to balance its current account deficit, one of the biggest in the developed world at around 4 percent of output.

A poll published on Wednesday showed more than half of ordinary Britons are worried an “Out” vote will weaken the pound, with 43 percent saying it will be an important factor in how they vote in June.

“A slower week for data and policy events... could create some breathing room for the pound after previous losses,” analysts from Citi said in a morning note. “However, with short positioning not yet stretched investors may sell into any rally.”